Signs of stress in MSME sector coming to light, increase of bad loans: RBI

Signs of stress in MSME sector coming to light, increase of bad loans: RBI

Small and medium-sized businesses (SME) and the microfinance sector are experiencing signs of stress. In its Financial Stability Report (FSR), the Reserve Bank of India (RBI) emphasized the need for close monitoring of these portfolios.

As of the end of September 2021, credit to the MSME segment had slowed (year-over-year) compared to March 2021. According to the report, there was a decline in ticket sizes below Rs 25 crore across major bank groups.

Till November 12, 2021, 32 loans totalling Rs 2.82 lakh crore were sanctioned under the Emergency Credit Line Guarantee Scheme (ECLGS), of which Rs 2.28 lakh crore has been disbursed (Rs 1.94 lakh crore has been disbursed by the Scheduled Commercial Banks, constituting 20.6 per cent of the additional credit during the period).

As a result of macro stress tests relating to credit risk, it is predicted that the gross non-performing assets (GNPAs) ratio of SCBs may rise from 6.9% in September 2021 to 8.1% by September 2022 under baseline scenarios and to 9.5% under a severe stress scenario, said the RBI.

According to the FSR report, MSMEs are increasingly reporting bad loans, with both PSU and private banks reporting accumulation in NPA and SMA-2 categories in September 2021. In March 2021, the NPA level was 16.8 per cent; in September 2021, it was 18.5%. In addition, the transformation of low and medium risk MSME borrowers into high risk remains noteworthy, the bank noted.

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